Tuesday, November 24, 2015

Obamacare’s co-ops were regulated to death before they were even born

COLLAPSING CO-OPS: So far, 12 of the 23 Obamacare co-ops have failed, defaulting on more than $1.2 billion in federal loans. Only two have been able to break-even so far, and most of the survivors are eyeing massive premium increases – as high as 40 percent in some cases – in an effort to stay solvent.

By Eric Boehm

It’s been a no good, very bad month for the Affordable Care Act.

One of the nation’s top insurance companies has threatened to pull out of the government-run health insurance exchanges, while others are raising rates by double-digits after realizing that people signing up for insurance tend to be older and sicker than originally hoped.

On top of that, enrollment projections are way off.

But perhaps the biggest immediate crisis facing the Obama administration’s signature health reform measure is the utter collapse of many of the so-called “cooperatives” that were set up by states as part of the 2010 law.

The Consumer Operated and Oriented Plan, or Co-Op, portion of the health care law established nonprofit health insurers that would receive federal funding and were intended to compete with private, for-private insurers on the exchanges as a way to lower prices. They were supposed to be small-scale single-payer systems that would be free from the profit motive; a progressive’s dream solution to the problem of providing health insurance for all.

Instead, they’ve turned into a nightmare. So far, 12 of the 23 co-ops have failed, defaulting on more than $1.2 billion in federal loans. Only two have been able to break even so far, and most of the remaining co-ops are eyeing massive premium increases – as high as 40 percent in some cases – to stay solvent.

A government program being poorly run is nothing new, of course. But the co-ops established under the health care law were subject to a series of regulations that make you wonder how they were ever supposed to succeed in the first place.

“It should be no surprise that so many of them are going belly-up,” said John Davidson, director of health policy for the Texas Public Policy Foundation, on the latest edition of the Watchdog Podcast. “The rules that they put on these co-ops almost set them up to fail.”

For starters, the co-ops were barred from hiring anyone who had served at an executive level at any health insurance company in the country.

Think about that for a second. This was essentially a brand new business venture that was prevented from relying on the expertise of anyone who might have the slightest idea what they were doing.

Another regulation prevented the co-ops from raising any capital aside from what was provided via those federal loans. Other rules prevented the co-ops from being allowed to turn a profit, and if one happened to accidentally make money anyway, it wasn’t allowed to use its profits to help it grow.

It’s the kind of business plan that would be laughed out of a business school classroom.

“The co-ops were essentially amateur exercises,” said Davidson. “Running a health insurance company and keeping it actuarially sound is a difficult thing to do, under the best of circumstances.”